Profit Center, Cost Center

Budgets#

Profit center “budgets” are “revenue budgets,” meaning they are on the hook to make a certain amount according to that year’s plan. Profit centers think about growth and what could go right.

Cost center budgets are what we normal human beings call budgets- an amount of money set aside that you are cleared to spend. Cost centers think about efficiency and what could go wrong.

Headcount#

A profit center headcount is based on external opportunity. If someone with a great network can be brought in, it will boost revenues, or if a new market opportunity opens up, more hires are required. Objections are few and far between.

A cost center headcount is based on internal efficiency. You look for credentials, stability, track record, and you win by doing more with less. Headcount increases go through heavy vetting and political horsetrading (this is not always true; a company in hypergrowth may actually need to grow cost centers faster than any other department).

Loss#

When the company isn’t doing well, the company is loath to let go of top profit center people because they have to do the math around the loss in revenue vs. the money saved.

Cost center people are net money burners, so it is easier to let some go and ask those who remain to do more. This isn’t always true; when the economy is tanking or the competitive landscape has shifted, there might not be enough market opportunity to keep around profit center people. If your company has salespeople, talk to them about how they break down sales pipelines for more information.

They cannot live without each other#

Profit centers and cost centers can’t live without each other. They are partners more than competitors. Profit centers don’t deserve 100% credit for all the profit they make because Cost centers make it possible for them to get that revenue. Cost centers aren’t to blame for 100% of the money they spend, because they spend a large part on behalf of profit centers. And yet companies sometimes forget.

If you have personally experienced some of this, I’m sorry for bringing it up. However, we should consider where the developer sits in all of this.